Here are 5 reasons to anneal steel. 
To alter the grain structure;
To develop formability;
To improve machinability;
To modify mechanical properties;
To relieve residual stresses.
The annealing process is a combination of a heating cycle, a holding period or “soak” at temperature, and a controlled cooling cycle. Atmospheric controls are generally used to protect the steel from oxidation. 
The temperatures used and the cooling rates are carefully selected to correspond with each steel grade’s chemical composition in order to produce the results desired. 
For bar steels used in our precision machining shops, there are three kinds of annealing that may be encountered:
Subcritical Anneal
Solution Anneal
Spheroidize Anneal
Subcritical Anneal 
 A subcritical anneal is the metallurgical name for what is termed a process anneal or stress relief anneal in North American commercial practice. It consists of heating the steel to a temperature close, but below, the steel’s lower critical temperature or Ac1. This simple anneal reduces stress and hardness in the material and makes modest changes in its microstructure. Steel mills often employ this to improve cold shearing or cold forming. This is sometimes used between cold forming operations to reduce hardness. 
Solution Anneal 

Lamellar Pearlite.

Solution annealing is referred to in commercial practice as ‘LP Anneal’ or Lamellar Pearlite Anneal. Lamellar pearlite is the microstructure that predominates when doing this kind of anneal. The cycle for this anneal involves heating the material above the critical range (Ac3) and holding the steel (soaking) at that temperature for a length of time followed by slow cooling below the critical range (Ar1) temperature. This cycle reduces hardness and reprecipitates the carbide phase as lamellar pearlite. Controlling the time and temperature gives the metallurgist a means to alter the resulting lamellar pearlite structure, and refine the ferritic (as rolled) grain size. 
LP anneals are usually applied to medium carbon (0.40-0.65 weight %) plain carbon and alloy steels for precision machining in order to reduce hardness and improve machinability. 
Spheroidize Anneal   
Spheroidized Microstructure.

Spheroidize annealing is the term that describes a thermal process which results in a globular or spheroidal type of carbide after heating and cooling. There are several types of spheroidize cycles which we will write about in a future post. 
Spheroidized microstructures are desireable for machinability and improved surface finish when machining higher carbon steels. Spheroidized microstructures are also preferred when the steel is to be severely cold worked: cold extruded, cold upsetting, or bent. Most bearing steels are first spheroidize annealed prior to machining. 
Lamellar Pearlite photo 
Spheroidized Photo 

In this post we’ll take a look at the significance of the last 2 digits of the steel grade designation. We will be discussing carbon, not alloy grades.
The first 2 digits give us an idea about whether the grade is a plain carbon or alloy steel. See our post here. So 1018 is a plain carbon grade;  1137 is a resulfurized carbon steel; 4140 is an alloy steel.
So lets look at those last two digits in the 4 digit  AISI/ SAE grade designation, and what they mean in the carbon grades we see in our shops.
The secret to understanding real estate  is location, location, location.
In steel, the secret to understanding is carbon, carbon, carbon.

titanic hull trans21C
This is .21 Carbon steel from the hull of the Titanic.

Carbon is so important in understanding a steel’s characteristics, that in the North American nomenclature system, the last two digits of the grade are the average carbon content expressed as weight  %. Carbon is the most important indicator or predictor of a steel’s properties and response to processing.
So in that 1018 steel, 0.18 weight % carbon (on average) is implied; in 1137, 0.37 wt % carbon (on average) is implied; in 1144, the average carbon content we expect is, you guessed it, 0.44 wt.%.
So what does that mean to us as machinists?
Very low carbon. Grade 1008-1010. The low carbon content makes these steels low strength and very ductile. Typically used for cold heading. Cold forming. The machinist would characterize these as gummy. Chips are stringy, continuous, and soft.
Low carbon. Grade 1018; 1022. Low carbon means low strength. The non alloys in this range are weldable, and all of these grades are cold formable with out  the need for an anneal.  Grades in this carbon range are often carburized to achieve a high surface hardness. Not a good choice for machining, difficult to get chip to break.  Chips are somewhat continuous, and soft to semi-soft. Parts made from these grades tend to have low stock removal, and look like the bar that they were made from- bolts, light duty shafts, tie rods,  pins.
Medium carbon.  1045, 1137, 1144. Medium carbon means medium strength. Usually cold drawn. Can be heat  treated. Not recommended for cold heading. Welding requires special practices and residual control.  (Do not weld 11XX grades due to high sulfur content!)
Chips are continuous and semi hard (1030), continuous and tough (1035), and continuous and start to become springy or hard (1045-1050).  Small shafts, forgings, and kingpins are typical of these grades. Not usually annealed. Heavy draft (cold work) followed by a stress relief operation can get yield strengths into the 100,000 psi minimum. ASTM A 311 class B is one such designation, Stressproof (TM)  is Niagara LaSalle’s trademarked name for a similar product.
High carbon. Above 0.50 carbon, most of us start to describe steels as “high carbon.” Depending on the application, and carbon content, an anneal may be required for processing. My rule of thumb for carbon grades  is at 0.60 and above, an anneal is required prior to cold drawing. ( For alloys, generally annealing is required at 0.40% carbon.)   So a 1060 bar would be annealed prior to cold drawing.   The type of anneal for these steels would be called a lamellar pearlitic anneal. It would help to develop a  predominately coarse lamellar  pearlitic structure in the steel. Chips are continuous and range from hard (1060) to tough (1070) to springy (1080 and above).
Very high carbon. At 0.90  carbon and above, (drill rod and bearing steels) a different kind of anneal is called for. It is called spheroidize annealing, and results in a greater mean free path of ferrite between the hard carbide particles in these steels. Very high carbon steels are most machinable in the spheroidize annealed condition.
Adding sulfur to carbon steels is called resulfurizing. This addition provides a way to break up the chip, thus escaping the continuous chip that we get from 10XX steels. This is why 11XX and 12XX steels are so machinable.
Click here to learn how  steel chemistry might have contributed to the sinking of the Titanic.
Photomicrograph from JOM, 50 (1) (1998), pp. 12-18.